Selecting the right strategy for the right diversification profile

As hedge fund strategies are not a homogenous alternative class and managers increasingly paint their strategy as non-correlated to their alternative investment peers, we examine which strategies provide the best diversification for various investors

The performance of hedge funds could be broken down into three distinct components, namely traditional betas, alternative betas, and alpha.

As a result of the very nature of their return-generating processes, hedge funds can be used to improve the diversification of traditional portfolios (that is, as part of investors' core portfolios), or to implement portable alpha strategies (that is, as part of investors' satellite portfolios).

While the alpha logic has long been the dominating paradigm, with